Good News: Consumer Spending Keeps Rising

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RVBusiness
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March 29, 2011 @ 7:07 am
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U.S. consumer spending rose 0.7% in February, the largest increase since October and the eighth straight month of gains, easing some worries about the economic recovery, the Wall Street Journal reported.

After adjusting for inflation — factoring out such things as the jump in gas prices — consumption rose 0.3%, the Commerce Department said Monday (March 28).

“Consumers could have endured these higher (gasoline) prices by cutting back on discretionary purchases, but they did not,” said Ken Mayland, president of ClearView Economics.

The pickup in spending came as personal income rose by 0.3% last month, though higher prices sapped the gains. The saving rate, meanwhile, slid to 5.8%.

Congress and the Obama administration in December agreed to extend income tax cuts for Americans. The tax relief has fattened paychecks, providing consumers a cushion against rising gasoline prices.

Recreational-vehicle maker Winnebago Industries Inc. blamed gasoline prices as it watched sales fall in its second quarter. Fuel prices were also factor in a drop in first-quarter earnings for cruise-ship line Carnival Corp. Still, Carnival had better-than-expected revenue and said summer ticket prices remained strong.

Despite rising commodity prices, inflation at the consumer level is tame. A gauge closely watched by the Federal Reserve rose in February but only slightly, the Commerce Department reported. The core price index for personal consumption expenditures, which excludes food and energy prices because of their volatility, increased 0.9% on a year-over-year basis, after climbing 0.8% in January. The overall index rose 1.6% from a year earlier largely due to gasoline prices.

Separately, the National Association of Realtors on Monday said its index for pending sales of existing homes increased 2.1% to 90.8 in February from January. Year-over-year, sales were down 8.2% from their level in February 2010.

The trade group’s index tracks agreements to purchase previously owned homes. A sale is considered pending when the contract has been signed but the transaction hasn’t closed. Pending sales typically close within one or two months of signing.

The housing market is trying to recover from its collapse after a long boom. Home sales soared during the boom, lifting prices, but began sliding in 2006, leading to the bursting of the bubble. Demand has been weak since.

Sales rebounded slightly early in 2010 thanks to the home-buyer tax credits but collapsed again when those incentives expired, and there has been little talk in Congress of reviving the incentive.

There are many signs that the market remains weak. High rates of joblessness and elevated foreclosures continue to depress home values. “The housing market dynamic still looks horrible,” said Steven Ricchiuto, chief economist at Mizuho Securities.